CMA Intermediate · Financial Management and Business Data Analytics · Money Market
Which statement about a Certificate of Deposit (CD) in the Indian money market is correct?
A Certificate of Deposit is an unsecured, negotiable, short-term instrument issued by banks and certain approved financial institutions against funds deposited, normally in dematerialised form. It is not a trade bill or a government security, which is why the other descriptions are incorrect.
- AIt is an unsecured, negotiable, usance-free money market instrument issued by banks and select financial institutions in dematerialised form against funds depositedCorrect
- BIt is issued only by non-banking companies to raise working capital against hypothecation of stock
- CIt is a usance bill drawn by a seller on a buyer and accepted by the buyer
- DIt is a government security issued by RBI with a maturity of over ten years
Explanation
A CD is an unsecured, negotiable money market instrument issued by scheduled commercial banks and select all-India financial institutions against deposits received, usually in dematerialised form. The bill description fits a commercial bill, not a CD. CDs are not stock-secured corporate borrowings nor long-dated government securities.
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